Importance Of Risk Management In The Success Of House-Building Project

Project Outline

Discuss why risk management is so important to the success of the selected project in a letter to the project sponsor.

Describe the steps that will be used to develop the Risk Management Plan.

The purpose of this report is to undertake a detail project management strategic planning and risk management based on a particular project selected for this purpose. The main objective of this paper is to carry out the primary roles and responsibilities involved in a proper ‘Risk Management Strategy and Plan’. To achieve this purpose, the study includes a detailed systematic or sequential approach to identify potential risks and develop appropriate risk response, mitigation strategies, monitoring and contingency plans (Dalcher, 2013). The report starts with a brief outline and description of the chosen project and dives into the details of executing the project successfully from the perspective of risk management, mitigation and planning strategies.

Project Description

The particular project selected for this purpose is based on a house building and construction project development scenario. To be more precise, the present study focuses on the fundamental aspects and the major phases of developing a project on building a house. For this purpose, the study is taken forward from the project manager’s perspective and the project scope is defined. This step essentially includes the creation of WBS or work breakdown structure for planning and scheduling the development and construction of the house (Davidson Frame, 2014). However, for a successful WBS creation, planning proper risk management strategy and contingency steps is specifically essential. 

The WBS for the ‘Building a House’ project requires identifying the major components of the primary work that is to be accomplished. After that, the major components or tasks are further decomposed according to their corresponding physical and functional characteristics. The different WBS levels clearly demonstrate each of these components and their corresponding sub-components (Davies & Brady, 2016). Therefore, the WBS includes the major project deliverables, phases, tasks and activities to be considered for the house-building project.

Outline Number	Task Name	Duration	Start	Finish	Predecessors
0	Building a House	149 days	Mon 2/22/16	Thu 9/15/16
1	House structure	91 days	Mon 2/22/16	Mon 6/27/16
1.1	Materials	33 days	Mon 2/22/16	Wed 4/6/16
1.1.1	define layout and materials	7 days	Mon 2/22/16	Tue 3/1/16
1.1.2	Managing delivery	8 days	Wed 3/2/16	Fri 3/11/16	3
1.1.3	Onsite storage of materials	18 days	Mon 3/14/16	Wed 4/6/16	4
1.2	Timber parts of structure along with interior and exterior walls	84 days	Wed 3/2/16	Mon 6/27/16	3
1.2.1	Masonry parts of structure including basement walls	19 days	Thu 4/7/16	Tue 5/3/16	2
1.2.2	skeleton works	30 days	Wed 3/2/16	Tue 4/12/16
1.2.3	finishes works	18 days	Wed 4/13/16	Fri 5/6/16	8
1.2.4	Cladding	7 days	Mon 5/9/16	Tue 5/17/16	9
1.2.5	Roofing	21 days	Mon 5/9/16	Mon 6/6/16	9
1.2.6	Walls	12 days	Mon 5/9/16	Tue 5/24/16	9
1.2.7	installation of mechanical / electrical	11 days	Wed 5/25/16	Wed 6/8/16	12
1.2.8	Steel parts of structure including major spans	15 days	Tue 6/7/16	Mon 6/27/16	11
2	Scheduling, budget and site management	73 days	Tue 6/7/16	Thu 9/15/16
2.1	Feasibility study	9 days	Tue 6/7/16	Fri 6/17/16	11
2.2	hardware and software requirements	14 days	Mon 6/20/16	Thu 7/7/16	16
2.3	Process requirements	11 days	Fri 7/8/16	Fri 7/22/16	17
2.4	Facilities	4 days	Mon 6/20/16	Thu 6/23/16	16
2.5	Equipment	6 days	Mon 6/20/16	Mon 6/27/16	16
2.6	Stakeholder management	13 days	Mon 6/20/16	Wed 7/6/16	16
2.7	Budget planning	7 days	Thu 7/7/16	Fri 7/15/16	21
2.8	Budget preparation	17 days	Mon 7/18/16	Tue 8/9/16	22
2.9	Communication planning	10 days	Wed 8/10/16	Tue 8/23/16	23
2.10	Schedule preparation	17 days	Wed 8/24/16	Thu 9/15/16	24
2.11	Managing change	4 days	Thu 7/7/16	Tue 7/12/16	21
2.12	Monitoring and measuring progress	9 days	Wed 7/13/16	Mon 7/25/16	26
2.13	Procurement	10 days	Thu 7/7/16	Wed 7/20/16	21
2.14	Risk assessment	10 days	Wed 7/13/16	Tue 7/26/16	26

Table 1: WBS task and subtasks levels

(Source: Created by the Author)

Figure 1: Work breakdown structure for house-building project

(Source: Created by the author)

Importance of risk management

The project managers need to coordinate properly with the stakeholders in order to establish effective risk management strategy and plan, through which the project manager specifically identifies the strengths and weaknesses, threats and opportunities for the ‘building a house’ project development (Floricel, Michela & Piperca, 2016). For the present scenario, the following are the reasons why risk management is essential for executing the house-building project.

Risk Management Justification

For successful accomplishment of the house-building and construction project, it is important to consider carefully some of the major factors that may cause hindrance to the smooth flow of the development process. For example, bad or uncertain weather conditions, unclear and ambiguous objectives, non-compliance with particular construction rules, policies or regulations, operational risks, breaches of information and various other kinds of internal as well as external risks involved.  

With respect to scenario as described above, risk management helps identifying the potential threats and challenges and thereby formulates appropriate strategies and procedures for preventing these identified risks (Hobbs, 2012). In addition to that, it is also essential to execute these formulated strategies at the correct time in a correct manner. Moreover, all of the members directly associated with the project development needs to be adequately aware of the potential risks as well as with the adopted strategies to be able to cooperate with the project team in a proper way. Apart from that, risk management techniques are also significantly important to determine the critical tasks for the project and thereby set appropriate ground rules that facilitate achieving the primary objectives of the house-building project under consideration.

The detailed steps involved in the process of developing a risk management plan for the present project of house construction under concern are described as follows:

Step 1: Establishing the context: the first step deals with identifying the accurate objectives of the stakeholders determine the availability of resources and appropriately recognize the structure that can be adopted for coping with different scenarios that may arise during the development phase (Huemann, 2013).

Figure 2: Steps in developing risk management plan

(Source: Created by the Author)

Step 2: Identifying the potential risks: This step deals with the identification of potential risks by different methods such as by talking to the stakeholders, brainstorming, recognize the major areas of safety concerns that might be faced.

Step 3: Assessment of the identified risks: The risk assessment process involves measuring the identified risks based on their probability of occurrence and potential severity of loss. It essentially helps in prioritizing the risks (Hydari, 2013).

Step 4: Treating the potential risks: This step deals with defining how each of the risks is to be dealt with i.e. the method or course of action to handle the risks.

Step 5: Creating risk management plan: Creation of risk management plan depends on choosing proper measures and controls for mitigation purpose.

Step 6: Implementation of the plan: Implementation specifically deals with actualizing the planned methods for mitigating the impacts of risks.

Step 7: Evaluating and reviewing the plan: The initial plan may need changes or additional information (Young, 2013). For this purpose a constant review and evaluation of the plan is to be ensured.

Brainstorming potential risks for house-building project

The several types of risks that can be faced in this particular project are discussed underneath:

Technical risks: The ‘building a house’ project can significantly involve different types of potential technical risks associated with the design process, need for exceptions in the blueprint design, construction risks such as accidents (Turner, 2012).

External risks: The external risks that this particular project may face can be based on inconsistency in the time, scope or costs, lack of information needed for permits, risks regarding licenses. Late changes or additional needs and requirements in the stakeholder requests, unwillingness of the landowner to sell, changing of priorities, inaccurate assumption at the planning stage, environmental factors and so on.

Organizational risks: Organizational risks can include inefficiency of the workers, losing experienced staff at a crucial phase of the development process, unanticipated workload, and inadequacy of planning time and so on (Rose, 2016).

Project management risks: Project management risks may include unwanted delays caused by the contractors and consultants, potential errors found in the estimation of costs and scheduling process, lack of coordination and communication, lack of control, improper definition of project scope, deliverables or costs.

Performance risks: Performance risks may include inadequate equipment and labor productivity, defects in the works, unsuitability of materials, disputes and conflicts among the labor and so on.

Financial and economic risks: The different financial and economic risks include inflation, funding related issues and so on.

Security risks: Security risks may include threats such as intrusion, corruption, terrorism, and most importantly negligence.

Contractual and legal risks: These types of risks may include delayed resolution of certain major disputes, sudden changes in order negotiations, delay in payments, or extras or contracts or even insolvency of contractor or subcontractors (Randolph, 2014).

Societal and political risks: This type of risks can be environmental pressures, different policies and regulations, non-compliance with laws, safety or labor laws, strikes or public disorders (Randolph, 2012).

The different risk identification technique applied for identifying the above risks essentially involved recognizing the sources of risks using SWOT analysis. The SWOT analysis helps in pointing out the potential threats as well as the weaknesses for the present project.

Figure 3: SWOT analysis for house building project

(Source: Created by the Author)

Other than ‘Brainstorming’ and ‘SWOT analysis’, three more procedures were adopted for this purpose. These are discussed below:

Interview notes: The interview sessions conducted by specialists can yield the sources of business risks from different management levels with respect to their individual concerns.

Workshops: This particular risk identification method deals with arranging for workshops, meetings with a group of employees and staffs for identifying risks and their potential impact on the organization.

Questionnaires: This technique deals with developing questionnaires to that focuses on the issues and concerns of the staffs to understand the risks and threats involved in the operating environment of the project.

Risk matrix for grading the identified risks

Likelihood of occurrence	Level of severity
	LOW	MEDIUM	HIGH
LOW	3	2	1
MEDIUM	1	3	2
HIGH	3	2	1

Table 2: Risk matrix

(Source: Created by the Author)

The risks identified for this project have been prioritized depending on the risk matrix as demonstrated above.

Risk Description	Occurrence	Severity	Rank (Prioritization)	Status
Physical risks (natural catastrophes, geotechnical conditions, weather conditions, accidents etc.)	Medium	High	2	—
Financial and economic risks (inflation, funding)	Low	Medium	3	—
Societal and political risks (non-compliance with laws, public disorders)	Low	High	1	—
Project management risks (delays by the contractors and consultants, lack of coordination and communication)	Medium	Low	3	—
Contractual and legal risks (payment delay, changes in order negotiation,  disputes)	High	Low	2	—

Table 3: Risk assessment

(Source: Created by the Author)

Risk Name	Risk Description	Risk Likelihood Ranking	Risk Impact Ranking	Risk Impact Description
Risk 001	Physical risks including bad weather situations, natural catastrophes and other geotechnical conditions	Low	High	The project cannot be progressed unless the impact is reduced, severe damage may be caused
Risk 002	The financial risks may include inflation, fundraising problems	Medium	Medium	The quality of the project
Risk 003	The project management risks may involve errors in schedule and cost estimation, delays or lack of communication and coordination among them team members	High	High	The smooth execution of the project is significantly disrupted, deliverables are not properly met
Risk 004	Performance risks essentially involves lack of experience and skills among the workers	Low	High	The construction phase involves major flaws that may result in faulty design or development of the house structure
Risk 005	Security risks such as intrusion, corruption, terrorism	Low	High	Project development can be entirely hampered or postponed
Risk 006	Unanticipated workload, internal conflicts, sudden change in mission	Medium	Medium	The project execution is significantly disrupted and risk mitigation process is applied to reduce the impact
Risk 007	External risks such as stakeholder miscommunication, change of priorities, inaccurate planning, supplier disputes	High	High	Immediate risk mitigation is undertaken otherwise the project fails in the long run
Risk 008	Social and political risks such as labor strikes, public disorders, non-compliance with laws	Medium	Medium	The project may be postponed or kept on hold, certain phases may be significantly affected

Table 4: Risk matrix for grading the identified risk

(Source: Created by the Author)

Risk description	Risk response	Associated action
Physical risks (natural catastrophes, geotechnical conditions, weather conditions, accidents etc.)	Avoidance (elimination)	No activity is performed
Financial and economic risks (inflation, funding)	Reduction (mitigation)	Methods are incorporated to reduce the severity
Societal and political risks (non-compliance with laws, public disorders)	Retention /Accept	The loss already occurred is  to be accepted
Project management risks (delays by the contractors and consultants, lack of coordination and communication)	Transfer / Share	The risky area is shared with a third party
Contractual and legal risks (payment delay, changes in order negotiation,  disputes)	Retention / Accept	The loss already occurred is  to be accepted
Security risks (corruption intrusion etc.)	Transfer / Share	The risky area is shared with a third party

Table 5: Risk response strategy

(Source: Created by the Author)

Inputs to risk response strategy planning are essentially the following:

Risk management plan: The risk management plan involves the specific method descriptions starting from risk identification, response planning, monitoring and control.

Prioritized list of quantified risks: The risks are listed according to their order of priority from high to low risks (Morris, 2013). The probability and impacts of the individual risks associated with them are included in the risk response planning process.

Risk thresholds: Risk thresholds are developed and referred to, in case of understanding the potential of the organizations, and identifying the acceptable degree of risks that can be allowed that influences the risk response planning strategies.

List of potential responses: The risk identification process requires categorization of individual risks with respect to their probability, impact and particular nature.

Risk owners: Project stakeholders play the major role in the decision-making process of risk response planning (Muller & Soderlund, 2015).

Common risk causes: Other than the input factors as mentioned above, it should also be checked whether or not more than one risks are generated by the same source i.e. a common cause.

Tools and techniques to plan risk response for the identified risks: The tools and techniques for formation of the risk response strategy are described below-

Avoidance: Risk avoidance specifically deals with eliminating the portion that was causing the risk to occur (Levin, 2013). Risks events are thoroughly assessed for obtaining required information. The project plan is to reduce the scope, requirements, or specification.                                    

Transference: Risk transference deals with outsourcing the specific risks to third party and share the risks. It may include passing responsibility or shifting liability (which is called outsourcing).

Mitigation: Certain risks are handled with mitigation techniques (Indelicato, 2013). The probability or impact is to be reduced by taking measures such as implementing new course of actions that intend to reduce the specific problems.

Acceptance: Risk response also involves another type, namely, risk acceptance. A contingency plan is applied for taking the particular course do as to formulate the most suitable response strategy (Lippe & vom Brocke, 2016).

Outputs of the risk response strategy development and application:

Risk response plan, also known as the risk register, includes the identified risks, risk descriptions, the areas or components of the projects that will be affected by the particular risk as well as the particular project objectives that will be affected by the identified risks.

Apart from the risk register, it is also necessary to identify the risk owners and thei corresponding roles and responsibilities that have been assigned to them. outputs of the risk response planning further involves the residual risks, secondary risks as well as the contractual agreements made by transferring outsourcing certain risks to the third parties (Mir & Pinnington, 2014). Apart from that, in case of the acceptance risk response plan, the contingency plans are also a part of the output.

Risk response strategy forming also involves allocating risk owners to- each of the individual risk. This process has to be performed carefully as it is a very crucial task to select the right owner for the type of risk.

Risk register updates also result from applying the risk response strategies (Mastrofini, 2013). The risk register is updated with proper description of the actions associated with the particular risk response.

Project management plan updates are also considered one of the outputs of the risk response strategies. These updates specifically decides how the individual risk will be treated and based on that, the plans and strategies are modified.

Project document updates are made after identifying the necessary areas for improvements on the managerial aspects (Leybourne, Warburton & Kanabar, 2014). These updates mainly result from identification of managerial risks.

Risk related contract decisions are usually related with making contractual agreements among the third parties for planning suitable and appropriate risk response. Risk management can further consider establishing subcontracts with proper roles and responsibilities. Apart from that, it also helps deciding whether or not to choose a particular contractor for the house building project.

Purchasing and procurement planning refers to the decision, whether or not to purchase certain raw materials for the development purpose. This mainly involves the reviewing of risks associated with purchasing or production decisions (Floricel, Michela & Piperca, 2016). The beneficial factor of the risk response strategies is that, the risks can be directly transferred to the sellers or third parties, or the suppliers of the raw materials required for the development process. Updates to the procurement management planning and documentation can also result from risk response planning.

Task description	Project Chartering Committee	Client Representative	Project manager	Technology Team	Risk manager
Risk planning	ü	ü	ü	ü
Risk identification			ü		ü
Risk analysis		ü	ü		ü
Response planning	ü	ü	ü	ü
Monitoring and control	ü		ü	ü	ü

Table 6: Risk responsibility plan

(Source: Created by the Author)

The risk monitoring and control is discussed with the specific inputs, tools and techniques and outputs (Ponnappa, 2014).

Inputs: inputs for monitoring and controlling risks are essentially as follows:

Risk management plan

Risk response plan

Communication plan

Additional risk identification and risk analysis

Changes on project scope

Tools and techniques: tools and techniques applied for control and monitoring risks:

Risk response audits

Risk reviews

Performance measurement and evaluation

Earned value analysis

Outputs: usually the outputs of this step are as follows:

Change requests

Updates to the risk response strategy matrix

Risk database

Corrective actions

Workload plans

Updates to the checklist of risk identification

Risks WBS of Building a house project

Figure 3: Building a house project risks WBS

(Source: Created by the Author)

Tasks	Subtasks	Employees	Duration (days)	Budget	Totals
Ground works					$66,000
	Concrete works	5	16	$43,000
	Excavation	2	14	$23,000
Landscaping					$43,568
	Pool	7	13	$12,000
	Yards	5	24	$12,000
	Gardens	6	17	$19,568
Materials					$46,050
	Delivery		24	$24,900
	Storage		20	$21,150
House structure					$73,361
	Steel	5	23	$12,100
	Masonry	9	30	$13,124
	Timber	2	11	$24,903
Project management				$23,234
Interior					$34,243
Services				$12,123
	Electrical	2	11	$12,120
	Security	8	10	$10,000
Cladding					$60,150
	Roofing	10	20	$31,000
	Walls	12	25	$29,150
					$3,23,372

Table 7: Budget updates

(Source: Created by Author)

Stakeholder	Messages	Vehicles	Frequency	Communicators	Feedback Mechanisms
Project Sponsor	Communicate updated project status	Weekly PMO status report	Monthly	Project Management Team (Project Manager)	E-mail, In-person or shared drive
Project manager	Previous day checkpoint achieved	Board meetings	Weekly	Project Management Team	Tele-conference
Project Team	Providing top down communication and resolution of the issues in team	Team meetings	Daily	Project Team members	In-person in a conference room
Project chartering committee	Correspond status and escalate the issues that need potential resolution.	Weekly executive report	Weekly	Project Sponsor administrative members	In-person or shared drive

Table 8: Communication plan

(Source: Created by the Author)

Conclusion

The report thoroughly included the risk management strategy and planning activities required for undertaking a project based on ‘building a house’. The construction of the house and its different tasks and activities related with the major components of house building and construction are also described. The house construction project essentially involves potential risks that might crop up during the execution of the house construction and development project. In addition to that, the paper also focuses on the specific steps involved in risk management plan such as identification of risks through brainstorming, assessing and prioritizing risks, developing response strategy and plans. Finally, the project also involves the control and monitoring plan for ensuring successful accomplishment of the entire project of ‘building a house’. The combination of strategies are important for preventing certain risks by taking adequate measures against such threats as identified in the report with respect to the particular project selected for this purpose.

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